Wednesday, August 28, 2013

Bernanke Is Getting Killed in the Bond Market

Federal Reserve Board chairman Ben Bernanke's latest disclosure statement for year end 2012 shows that he held positions in the Blackrock High Yield Bond Fund and US Treasury strips. If he continues to hold these positions, he is losing big time.

His Blackrock bond position is down by at least 5%. Meanwhile, his strips position is likely getting destroyed.

U.S. zero-coupon STRIPS allow investors to hold the interest and principal components of eligible Treasury notes and bonds as separate securities. STRIPS offer no interest payment; investors receive payment only at maturity.

Here is a chart on the PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF, which is likely comparable to what Bernanke is holding. Over the last 12 months, it is down more than 24%.

Outside of a position in the Blackrock Large Cap Core Fund, the bullish plays on long-term interest rates are the only individual investment positions he holds -- and he has been terribly wrong to hold these positions over the last 12 months, if he still does, which is very likely.